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WASHINGTON — Democratic leaders of the House Financial Services Committee are exploring creating a federal regulator or modifying a multi-state compact to increase oversight and provide more uniform standards for insurers of municipal bonds and other financial products.

Rep. Paul E. Kanjorski, D-Pa., chairman of committee’s capital markets panel, talked about the regulatory options the committee is exploring in an interview Friday. The options include drafting legislation to allow for the creation of a federal regulator for insurers, or providing them with the option of complying with a federal charter. The insurers are currently chartered by the states and follow state regulations.

Kanjorski’s comments come in the wake of rating downgrades to bond insurers that have a lot exposure to the troubled subprime mortgage market. Last week, he announced that he has launched an inquiry into the bond insurance industry and asked federal and state regulators for information, including whether statutory or regulatory reforms are needed. He plans to hold a hearing Feb. 14 to discuss these issues.

Kanjorski said insurers might prefer to be under a federal charter and single federal regulator instead of having to conform to the current patchwork of 50 sets of state regulations.

“Many insurance companies in various industries are requesting it,” he said. “They have to jump through hoops and a federal regulator may help them cut down on their costs and get them to market faster with their products.”

One option under consideration is for Congress to create a federal department of insurance modeled on the Treasury Department’s Office of the Comptroller of the Currency. The president would appoint its members and Congress would confirm them, Kanjorski said.

“You would have to make sure that you would take it out of control of the administration or politics, because if you did not then you’d have a terrible disaster,” he said, stressing that the committee is still in the early process of exploring these options.

The committee is still looking into which insurance fields would come under the oversight of a new federal regulator, but insurers of municipal bonds would likely be included, he said.

“That’s the biggest struggle, who would come under this umbrella,” he said. “Right now we’re very geared to looking at the municipal bond market, what are the problems, and how can we shore that up and prevent any collapse or wholesale sales in that market.”

But establishing a federal department of insurance could be expensive and take a lot of time to establish, he noted, saying the committee might have to act more quickly.

“Some of these things have to be done relatively fast,” he said. “We may take a higher risk of some mistake but we have to do it.”

Kanjorski noted that the committee could flesh out an existing legislative proposal, the National Insurance Act of 2007, which has been introduced into both houses of Congress but has not yet received much support. As proposed, the bill would allow insurance companies to opt for a federal charter. Its language is specifically targeted to the life and property casualty sectors of the insurance market, the latter of which includes financial guarantors in the bond market, a congressional source said Friday.

Another option would be to expand and modify an existing compact between 30 states to expedite the time it takes to develop life, annuity, long-term care, and disability insurance products. Currently, the compact does not include bond insurers. Were all 50 states to agree to the compact, it would have the same effect of forming a single federal regulator because all of the states would follow the same standards.

Kanjorski said the compact could single out the state with the highest standards and designate its regulations as uniform standards.

“If you complied with their requirements, then you’d be recognized in all 50 states,” he said.

As the House panel begins to look into the bond insurance industry, the Senate Banking Committee is also intently monitoring how the insurers exposed to the subprime mortgage market are holding up, according to a committee aid. The panel, chaired by Sen. Christopher Dodd, D-Conn., has been in contact with some of the bond insurers and may hold hearings, but no decisions have been made, the aid said.

Meanwhile, a senior staff member of the House Financial Services Committee said Friday morning that committee chairman, Barney Frank, D-Mass., met Thursday with some of the largest bond insurers. Addressing the Government Finance Officers Association’s winter meeting here, James Segel, special counsel to the committee, said Frank had informally met with the insurers, but declined to name the firms that attended the meeting.

Segel, who said he was speaking for himself and not for Frank or the committee, suggested that a federal regulator for insurers might be a good idea in light of their rating downgrades.

“It seems bond insurance is a federal problem,” he said. “Not only do they ensure local governments and state governments and revenue bonds, but they also have gotten involved in collateralized debt obligations ... and that seems to be what the situation is.”

Also on Friday, Frank Hoadley, the chair of GFOA’s debt committee and the capital finance director for Wisconsin, said the committee is planning to put together a checklist that issuers can use to assess their exposure to insurers that have received or could receive rating downgrades.

Hoadley talked generally about the insurance-related problems issuers are facing, after the committee discussed them for 90 minutes behind closed doors, at its winter meeting here.

A number of issuers with auction-rate securities backed by insurers that have been or could be downgraded want to convert to variable rate or some other mode to avoid higher interest costs, but are running into problems with tax law requirements, he said. Under tax rules, if the terms of a debt instrument are significantly modified, the bonds are deemed to be reissued and become subject to new requirements. The issuer, for example, would have to determine the amount of arbitrage to be rebated on the bonds and would have to rebate that amount within 60 days. In the case of 501(c)(3) bonds or small issue industrial development bonds, a reissuance might mean the borrower has to hold a hearing and seek public approval under TEFRA, or Tax Equity and Fiscal Responsibility Act. In addition, bondholders might have to recognize taxable gains or losses from a resissuance.

Market participants said Friday that some bond lawyers contend auction-rate securities that are part of a multi-modal structure can be treated as qualified tender bonds, which would not be subject to reissuance if converted to another mode. But there is controversy over this stance because a qualified tender bond is one in which the holder may or must tender the bonds at par at one or more tender dates and, technically, the auctionrate securities may never be tendered unless there is a change in mode.

Members of the American Bar Association’s tax-exempt financing committee meeting in Las Vegas on Jan. 18 asked regulators if the Treasury could clarify that multi-modal auction rate securities can be considered to be qualified tender option bonds to avoid reissuance problems, but the regulators were noncommittal, sources said.